Uxin Limited

Ladies and gentlemen, thank you for standing by and welcome to Yuxin's earnings conference call for the quarter ended June 30, 2021. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a Q&A session. Today's conference call is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the call over to your host for today's conference call, Ms. Shaoyan Xu. Please go ahead, ma'am.

Thank you, operator. Hello, everyone. Welcome to EUSIN's earnings conference call for the quarter ended June 30, 2021. On the call today are DK, founder and CEO, and John Lin, CFO. DK will review business operations and company highlights, followed by John, who will discuss financials and guidance. They will both be available to answer your questions during the Q&A session that follows. Before we start, I would like to remind you that this column may contain forward-looking statements made under the safe harbor provisions of the U.S. Private Security Litigation Reform Act of 1995. These statements are based on management's current knowledge and assumptions about future events that involve known or unknown risks and uncertainties. which could cause actual results to differ materially for those in the forward-looking statement. USIN does not undertake any obligations to update any forward-looking statement except as required under the applicable law. For more information about potential risks and uncertainties, please refer to our findings with the SEC. With that, I will now turn the call over to our CEO, E.K. Please go ahead, sir. E.K.

Thank you. Hello, everyone. Thank you for joining our early conference call today. To better communicate with both domestic and international investors, my prepared remarks

They will be in both English and Chinese.

The first quarter of 2022, that is, from April to June of this year, is probably the most challenging quarter in history for the company's operation. At the last conference, we also mentioned that before our new budget arrived on July 12, the company has been in a state of tension. The first quarter of fiscal year 2022, which ended on June 30, was one of the most challenging quarters we've experienced over the last 10 years. We were under huge capital constraints.

and yet to keep business growth. Encouragingly, we managed to deliver solid results despite all the challenge and achieved sustainable growth in terms of revenue and sales compared with the previous quarter. At the same time, we continued to do efforts on cost and expense control, and our operational loss substantially decreased in the quarter.

In the first quarter of fiscal year 2022,

Although we were only able to maintain a relatively small retail industry due to cash constraints, we still achieved to enhance our fundamental capabilities in vehicle sourcing, reconditioning, sales and delivery. All the progress we achieved this quarter has built a solid foundation for our future business expansion and the replication of our CNIRC model.

For vehicle sourcing, we continue to extend to upper stream of our used car acquisition network for our inventory owning model. Our solid branding and strong supply chain resources

with both individual car owners and car dealerships have enabled us to start more high-quality used vehicles at reasonable prices.

In Xi'an IRC, we have continued to polish the entire process, continuously optimizing the entire process of the IRC, changing the efficiency, equipment engineering, and personnel configuration. In order to ensure the quality of the vehicle, we strive to improve the efficiency of the entire process. In terms of car reconditioning capabilities in CNIRC, we continue to refine the whole process by standardizing end-to-end procedures, improving flow efficiency between key steps, upgrading equipment and technologies.

and optimizing staffing in the production lines. After several months of operation, the quality of our reconditioned vehicles has been fully examined. This has enabled us to offer stable supply of high-quality and valuable money cars for our customers.

In the sales and sales section, we put limited resources and funds into the determination to create long-term value for customers. It is very firm. We insist on timely summary based on customer feedback, and continue to improve the customer experience from sales to delivery and then to the sales section. The continuous improvement in service quality has been recognized by customers. The new height of NPS in this quarter has reached 44. The continuous improvement in product power and service power also allows us, even if the storage size is very small,

In terms of vehicle sales and after-sales services, we remain committed and focus on creating long-term value for our customers. We seriously follow up on customer feedback and continuously improve each step of the customer experience from sales delivery to after-sales support. During the quarter, our sales net promoter score, or NPS, increased to 44. The continued improvement of NPS has also enabled us to achieve decent sales conversion despite relatively small retail inventory, which gives us great confidence to continue to scale our inventory and boost sales.

In July, when the financing was in place, the company gradually entered the market. After receiving the first change of the new investment in July, our business has been recovering as expected and gradually resuming to high quality growth momentum.

We scale up our operations in three aspects, vehicle sourcing, reconditioning, capacity, and offline showroom expansion. Investments in these three key areas help increase our available for sale inventory. This offers our customers more selections and helps build a better experience throughout the car purchasing journey and thus bring higher sales conversions.

In order to increase inspection and reconditioning capacity in the long run, using and transforming county government of Hefei City

has recently entered into a strategic partnership to jointly invest in and build a used car inspection and reconditioning plant. With a total investment of up to RMB 2.5 billion, the plant is expected to have an annual production capacity of 60,000 to 100,000 vehicles once it is in operation. This production capacity will provide using with a stable and large supply of high-quality used vehicles in the coming years.

Going forward, we will continue to provide high-quality products and services to our customers

whose sales conversions feed by our strong supply chain capabilities and deliver steady sales growth and higher returns.

The past September 9th is the 10th anniversary of Youxin. Ten years have passed. Ten years ago, our team gathered together to make every Chinese consumer's dream of owning a good car become a simpler one. In the past ten years, we have created results and experienced setbacks. We are increasingly believing from the bottom of our hearts This year marks Youth Instance Anniversary.

which we just celebrated on September 9. In the past decade, we have experienced both exciting and tough times. UC has become stronger because of all of the challenges we have overcome as one team. It all started with the mission to make it easy to every Chinese customer to own a quality used vehicle. This is the solid foundation that drives our passion to provide customers with high-quality value-for-money used cars and best-in-class services. We are confident and determined to continue contributing to the long-term healthy development of China's used car industry.

With that, I'd like to turn the call over to our CFO to walk you through the financial results. John, please. Okay. Thanks, DK.

Hello everyone, thanks for joining us today. As DK just mentioned, we had a very challenging quarter on both business operations and financial resources for the quarter ended June 3, 2021. As you all know, we announced our agreement into a binding investment term sheet on April 1, and we received the first tranche of the financing on July 12. Therefore, from April to June, we were running a CNIRC business with very limited resources. However, we still managed to deliver continued growth in terms of both vehicle transaction volume and the revenue. To achieve the above progress, we spent tremendous efforts to leverage our capital efficiently. Our team has successfully built up effective car-sourcing channels with strong supplies. However, we were only able to maintain a relatively small retail inventory in Xi'an IRC due to the capital constraints. Therefore, to balance the car sourcing supply and our cash capacity, we increased the percentage of vehicles sold through our wholesale channels for the quarter ended June 30, 2021. The closing of the first tranche of the financing transactions in July substantially improved our cash position and the ability to expand business. The daily car rate conditioning productivity of our HEON IRC was more than doubled. and we began to build up retail inventories rapidly. We expect the company's performance to continue improving in the following quarters. During the quarter ended June 30, 2021, we continued streamlining our business process to build a very lean organization. Spend where it matters the most has become our management philosophy that we are relentlessly pursuing ways to boost our operational efficiency. Let me give you one example. I joined in August of 2019, about two years ago. At that time, we had approximately 8,800 employees. Today, our employee headcount is less than 700. Just to let you get an idea of how determined we have been to gain operational efficiency. Our continued efforts paid off. The non-GAAP has just a lot from continuing operations substantially decreased in this quarter. Full details on quarter ended June 30, 2021 are available in our earnings release. So now I will run through some key numbers. All numbers are in RMB, unless otherwise stated. Transaction volume was 3,011 units this quarter, compared with 1,719 units sold the last quarter and 3,887 units sold in the same period last year. Retail volume was 679 units and the wholesale volume was 2,332 units. Vehicles that did not pass our retail standards were sold through our wholesale channels. As I said earlier, we had to increase the proportion of vehicles sold through our wholesale channels in order to boost the cash turnover. Total revenues were $278 million, compared with $196 million last quarter and $62 million in the same period last year, up by 42% quarter over quarter and 348% year over year. Retail vehicle sales revenue was $92 million, compared with nil in the same period last year. Wholesale vehicle sales revenue was $177 million. Gross margin was 4% compared with 4.6% in the previous quarter and an active 28.4% in the same period last year. Code operating expenses were 83 million, a 41 million drop from 124 million in the previous quarter and a 68 million drop from 151 million in the same period last year. Overall labor costs and expenses excluding severance pay decreased by over 30% quarter-over-quarter and 72% year-over-year due to the restructuring of organizations following our business model transformation. Looking ahead, we believe our ongoing efforts at cost-saving will benefit our financials in the long run. Nungap addresses the loss from continuing operation, which excludes the impact of service compensation was $45 million for the three months ended June 30, 2021, compared with $98 million in the previous quarter and $133 million in the same period last year. Net loss from continuing operations was $69 million for the three months ended June 30, 2021, compared with $133 million in the previous quarter and $152 million in the same period last year. Then about our cash position. As of June 30, 2021, we had a cash and cash equivalents of RMB 124 million. For our financing transactions of up to US dollar 315 million, we received the first tranche of US dollars 100 million in July. And we are well on track to close the remaining tranches. That sums up our results for the three months ended June 30, 2021. Moving on to our guidance. We expect our total revenues to be in a range of RMB $310 million to RMB $330 million for three months end of September 2021. This forecast reflects our current and preliminary views on the market and operational conditions, which are subject to changes. That concludes our prepared remarks. Thanks.

Thank you, John. Officer, we would like to open the floor for questions now.

Thank you. As a reminder, if you wish to ask a question, please press star 1 on your telephone keypad and wait for your name to be announced. If you wish to cancel the request, please press the pound or hash key. Once again, please press star 1 if you wish to ask a question. Your first question comes from the line of Eddie Wang from Morgan Stanley. Please ask your question.

Hello, DK and John. First of all, I'd like to congratulate you on the steady improvement of the performance every quarter. I'd like to ask two questions about the second-hand car industry. The first question is, when we were looking at the entire car sales, we saw that the entire car chip was in short supply, and this situation may not improve in the third quarter or fourth quarter. I don't know if this is a good factor for the second-hand car industry. Let me translate myself. I have two questions. First is a little about the short term. We noticed that the shortage of auto trips have quite an active impact of the China's new car sales starting from the second quarter of this year. So just want to know whether or not this shortage of auto trips in the new car will have some positive impact on the used car. That's the number one question. And the second question is that As we know that the EV sales as a percentage of total new car sales in China has been increasing in the past few years, and we are expecting that this proportion will go even further in the next couple of years. So just want to hear your view on the strong sales of EV's impact on the used car industry in the longer term. Thank you.

Okay, thank you, Eddie. Thank you for coming to our conference. Let me answer each question one by one. Let's start with the first one about the chip. In the short term, I think the chip shortage has a positive effect on the car industry. However, the chip shortage causes the delivery time of new cars to be longer and the price to go up. The needs of some new car buyers may turn to second-hand cars. However, I don't think this is a sustainable situation. The chip problem will be solved sooner or later.

I think in the short term, the shortage of chips has a boosting effect on the use of our industry. It takes longer for new cars to be delivered. This drops up car prices as the supply of the new cars in the market is reduced. Some of the new car buyers may decide to purchase a used car instead. However, we don't think the shortage of chips will be a long-term issue. And it will be eventually solved.

Now, if we don't consider the situation of chip supply, the scale of the second-hand car market is also gradually increasing. Because China now has a large enough amount of cars. The amount of cars that start to enter the second-hand car market will flow. Well, putting aside the issue of cheap supplies, the market size of the used car itself is also rapidly growing.

In China, the level of car ownership is already much higher than before. The existing vehicles in the market have started to gradually enter the used car market. On the other hand, consumers have become increasingly receptive to used cars. In addition, the industry policies have also become more favorable, such as lifting restrictions on cross-region transfers. reducing value-added taxes on used cars, and adopting electronic registration. These all provide positive healing for the development of the used car industry.

Yes, so compared to the shortage of new cars, we are now more concerned about how to make the quality of the car better, and how to make the sales, delivery, and sales service better.

So for UC, what we focus more on is to deliver high-quality used cars and provide a full suite of best-in-class services from sales delivery to after-sales support and therefore create good value for our customers and the industry as a whole. Meanwhile, we also work hard to control costs and expenses lose our operational efficiency in order to create long-term value for our shareholders.

Regarding the second question about EV, electric vehicles are indeed on the rise rapidly. I believe that new electric vehicles are also the main force behind the future structure of the automobile industry. This direction is definitely determined. After 10 years of development in the entire chain of cars, including purchasing, testing, For your second question, yes, the sales of electric vehicles have indeed increased very rapidly in recent years.

We agree new energy cars will be the mainstream ones in the future market. After a decade of development, UCIM has established a proven and complete system that covers used vehicle sourcing, inspection, sales delivery, and after-sales support. We have already started to work on inspection standards, the conditioning process, and after-sales services for used EV cars, and we will launch related service soon. especially the used EV cars and our inventory-only model. Thank you.

Your next question comes from Fei Dai from Tanfeng Securities.

Please ask your question.

We see that CNILC has been operating for almost half a year. The first share of the financing has arrived in July. Everything seems to be developing in a good direction. I would like to ask DK to share our main focus in the future operating plan. What is the core factor that drives sales? Repeat my question in English. Company CNILC has been in operation for nearly half a year. and you also received the first tranche of the new investment in July. It seems like everything goes in the right direction. Regarding your future plan, can you give us some color on your strategic focus and the core factors to drive sales growth in the future? Thank you, DK.

OK. Thank you. In July, the company was facing a lot of financial pressure, and there was no way to close the car and prepare and build a warehouse. After the financing was in place, the business quickly recovered. Now, whether it is the ability to close the car or the rapid improvement of production capacity, it is very much in line with our expectations. Our service and product power are constantly being enhanced. With more storage, the customer's strong demand will naturally bring more sales softening. We will also continue to expand our capacity and continue to increase our storage to provide more car choices for our users. You know, before July, we were indeed under huge capital constraints. As a result, we were unable to procure vehicles on a large scale.

then carry out reconditioning and build our inventory. After the founding was in place, our business has recovered immediately. Now both our car procurement capability and the production capacity are picking up rapidly, fully in line with our expectations. And we continue to improve our product and service capabilities in light of the Increasing inventory throughout customer demand will naturally bring more sales conversions. We will further expand our production capacity and increase inventory so as to provide customers with more selections. Meanwhile, with the improved reputation among customers, our IRC's regional influence has also enhanced. In addition, the gradually increasing customer referral rate will also drive high-quality sales growth. Therefore, the flywheel effect of our entire business model will rapidly drive our business growth.

In addition, we have been running this IRC in Xi'an for half a year, and it has gradually matured in terms of model operation, including standardization. It already has the basics of copywriting. In the future, in addition to continuing to strengthen the influence and business power in the industry in the area, we are also focusing on investing in IRC in new areas.

After nearly half a year of operation in CNR, the operating model has matured and is ready to be replicated. Going forward, in addition to continuing to strengthen using influence and competitiveness in existing regional markets, we are also preparing to invest in IRCs in more new regions to promote our business expansion. And in addition, our business in Hefei will also kick off soon.

Thank you.

Once again, if you wish to ask a question, please press star 1 on your telephone keypad. If there are no further questions on the line, I would now like to hand the conference back to Xiaoyan Su. Please continue.

Thank you again for joining today's call and for your continued support in UT. We look forward to speaking to you again soon in the future. Thank you.

Thank you. Bye-bye. Thank you. Bye-bye.

Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may now all disconnect.